If you fall behind on your mortgage, and your home is in a judicial foreclosure state, you lender must sue you in a civil foreclosure lawsuit to take your home. While being sued may sound scary, it's actually better for your in nonjudicial foreclosure states because you have more opportunities to contest foreclosure. And you want as many opportunities as possible.
But opportunities must be seized! Whether you want to keep your home by getting a loan modification, or you just want to avoid foreclosure for as long as possible so you can save money before giving up your home, you should seize the opportunities available to you by contesting the foreclosure lawsuit against you.
How do you do that? Well, at some point after falling behind on your mortgage, you will be served a Summons and Complaint notifying you that a lawsuit has been initiated against you. Your bank is the Plaintiff and you are the Defendant in the lawsuit. The complaint will state that the bank should be entitled to foreclose on your house since you've defaulted on your mortgage, and will include documentation to support their claim.
Answer the Bank's Complaint
You have the right to answer the complaint and include affirmative defenses. The answer responds to allegations made by the plaintiff, which you can admit to or deny. Here's an excerpt from an Answer filed for a recent client of our firm:
1. Defendant admits that it is the owner of the property which is the subject matter of this foreclosure action.
2. Defendant hereby denies each and every other allegation in all respects and demands strict proof thereof.
3. The authenticity of all instruments and documents attached to Plaintiff's Complaint...is hereby specifically denied.
4. The validity of all signatures and the authority of all signors on all instruments and documents attached to Plaintiff's Complaint... is hereby specifically denied.
So, all that was admitted was that our client owned the home the plaintiff wants to foreclose on. Everything else was denied and proof of their allegations was demanded. After the answer portion comes the affirmative defenses.
An affirmative defense in a civil lawsuit is when the defendant alleges a fact or set of facts that are different than what the plaintiff alleges. With an affirmative defense “the defendant may concede that they committed the alleged acts, but they prove other facts which, under the law, either justify or excuse their otherwise wrongful actions, or otherwise overcomes the plaintiff's claim.”
For example, in a foreclosure lawsuit, you could not dispute the fact that you haven't been paying your mortgage (doing that would be a negating defense), but say that the plaintiff still shouldn't be allowed to foreclose because they haven't proved that they have the standing to do so.
There are many affirmative defenses that can be used in foreclosure cases. Here are some of them:
Failure of condition precedent
There are many requirements for foreclosing stated in a mortgage contract. If the plaintiff fails to comply with any of these requirements, such as serving the defendant with a notice of default or intent to accelerate, that can be used as a defense by the borrower. Many mortgage contracts require the lender to send a breach letter to the borrower, which informs them that their loan is in default and gives them a path to fixing it, before foreclosure can happen. The plaintiff is supposed to attach the breech letter to the complaint. If they don't, that's a failure of condition precedent. If they do attach it, you can still question if the homeowner ever received it because it is not a self-authenticating document.
Lack of standing
The plaintiff must show the courts that they are the ones legally entitled to foreclose on you. That, in legal terminology, is called standing. The bank's errors, improper or incomplete documentation, or fraud may cause them to have a hard time proving their standing. If they can't prove it, the lawsuit will be dismissed. And most states require the plaintiff to own and hold the mortgage and note at the time they sue. If their documents don't show that they did, they can't take your property.
Failure to comply with federal law governing FHA-insured mortgages
Here's an excerpt from a recent answer and affirmative defenses for one of our clients who was facing foreclosure on his FHA-insured mortgage: “Federal law prohibits lenders from beginning foreclosure proceedings unless the lender has met certain servicing requirements...The Plaintiff has not met the servicing requirements of evaluating all loss mitigation options...Compliance with the servicing requirements is a pre-requisite to initiating foreclosure action.” That was the first of five affirmative defenses included in that answer.
Not the real party in interest
When a mortgage loan is made, there is a promissory note that is the borrower's responsibility to pay back, and the security interest that the lender has in the property in the form of a mortgage or deed of trust. Whoever is assigned the note and mortgage is the one with the right to foreclose. Problems arise when the mortgage and note are assigned to servicers, trustees, or holders and the right documentation or original note can't be found. If the ownership of your mortgage isn't clear, you may be able delay foreclosure.
Unfair lending practices
If your lender deceived you, acted unfairly, or failed to disclose required information, you may be able to challenge foreclosure because of it. The federal Truth In Lending Act (TILA) requires lenders to disclose the annual percentage rate, payment schedule, and other information about the loan. Lenders who do not give borrowers the correct information TILA requires have broken this law.
There are many other affirmative defenses that may be raised, such as plaintiff being barred from pursuing foreclosure due to loss mitigation review (aka dual-tracking), unconscionable terms, foreclosing on an active service member, and failure to properly invoke the court's subject matter jurisdiction. Some are state specific, such as verification of complaint in Florida.
These defenses may not get a foreclosure dismissed (even if they do, the lender may just file a new case), but they can buy valuable time for you to pursue a permanent solution, like a loan modification.
If you are served a summons and complaint, you should take it very seriously. Most states give homeowners about a month from the time they're served to answer the complaint. Failing to do that makes it easier for the plaintiff to move forward with foreclosure. You can answer it yourself, but unless you have prior experience, you're going to have a hard time doing the best job. And the consequences of failing are serious. Don't risk it. Talk to an attorney, and assert every affirmative defense you can.
Affirmative defenses used to contest foreclosure or a great loan modification won't just hit you over the head, but they may be out there. You just have to seize the opportunity.